BILL NUMBER: AB 254	CHAPTERED  10/10/99

	CHAPTER   850
	FILED WITH SECRETARY OF STATE   OCTOBER 10, 1999
	APPROVED BY GOVERNOR   OCTOBER 8, 1999
	PASSED THE ASSEMBLY   AUGUST 31, 1999
	PASSED THE SENATE   AUGUST 26, 1999
	AMENDED IN SENATE   AUGUST 24, 1999
	AMENDED IN SENATE   AUGUST 16, 1999
	AMENDED IN SENATE   JULY 15, 1999
	AMENDED IN ASSEMBLY   MAY 25, 1999
	AMENDED IN ASSEMBLY   APRIL 8, 1999
	AMENDED IN ASSEMBLY   MARCH 18, 1999
	AMENDED IN ASSEMBLY   MARCH 4, 1999

INTRODUCED BY   Assembly Member Cedillo
   (Coauthors:  Assembly Members Honda and Romero)

                        FEBRUARY 1, 1999

   An act to amend Sections 5913, 5914, 5915, 5916, and 5919 of, and
to add Sections 5920, 5921, 5922, 5923, 5924, and 5925 to, the
Corporations Code, and to add Section 1260.1 to the Health and Safety
Code, relating to health facilities.


	LEGISLATIVE COUNSEL'S DIGEST


   AB 254, Cedillo.  Health facilities:  sale of assets.
   (1) Existing law requires any nonprofit corporation that is
subject to the Nonprofit Public Benefit Corporation Law and is a
health facility, as defined, or is a facility that provides similar
health care, to provide written notice to, and obtain the written
consent of, the Attorney General prior to selling or otherwise
disposing of a material amount of its assets to a for-profit
corporation or entity or to a mutual benefit corporation or entity.
Existing law requires the Attorney General to conduct one or more
public meetings prior to issuing its decision whether to consent to
the proposed agreement or transaction, and, in any case, to issue its
decision within 60 days of the receipt of the written notice from
the public benefit corporation, subject to one additional 45-day
extension if necessary to obtain certain additional information.
Existing law authorizes the Attorney General to contract with outside
experts and consultants to assist the Attorney General in making its
determination and requires the public benefit corporation to
reimburse the Attorney General for all actual, reasonable, and direct
costs incurred by the Attorney General in reviewing, evaluating, and
making its determination.
   This bill would instead make these requirements applicable to any
nonprofit corporation that is subject to the Nonprofit Public Benefit
Corporation Law and operates or controls a health facility or
operates or controls a facility that provides similar health care,
and to any foreign nonprofit corporation that operates or controls a
health facility or a facility that provides similar care.
   This bill would also require the Attorney General to make
available to the public in written form the notice provided by the
health facility and any other information provided to it under these
provisions.  It would also authorize the Attorney General to conduct
an additional public meeting in specified circumstances prior to
issuing its decision whether to consent to the proposed agreement or
transaction and would expand the circumstances under which the
Attorney General may extend the 60-day period of review for an
additional 45 days.
   This bill would also authorize the Attorney General to contract
with outside experts and consultants to assist the Attorney General
in monitoring ongoing compliance with the terms and conditions of the
sale or transfer of assets, and would require the public benefit
corporation to reimburse the Attorney General for all actual,
reasonable, and direct costs incurred by the Attorney General in
monitoring that ongoing compliance.
   This bill would also enact similar provisions applicable to any
nonprofit corporation of the type described above that wishes to sell
or otherwise dispose of a material amount of its assets to a public
benefit corporation or entity.  It would also make certain technical,
conforming changes.
   (2) Existing law provides for the licensure of health facilities,
including general acute care hospitals, by the State Department of
Health Services, and makes a violation of those provisions subject to
criminal sanction.
   Existing law prohibits any member of the board of directors of a
nonprofit health facility that is required to obtain the written
consent of the Attorney General under existing law prior to the sale
or transfer of its assets to a for-profit corporation or entity or
mutual benefit corporation or entity, who negotiates the terms and
conditions of the sale or transfer of assets, from receiving
financial remuneration from the purchasing entity, subject to certain
exceptions.
   This bill would enact a similar prohibition with regard to the
sale or transfer of assets by a nonprofit public benefit corporation
that owns or operates a health facility to another public benefit
corporation, and would define a transfer for these purposes to
include the substitution of a new corporate member or members, in
certain circumstances.  By creating this new prohibition in the
provisions governing health facilities, this bill would expand the
scope of an existing crime, thereby imposing a state-mandated local
program.
  (3) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state.  Statutory provisions establish procedures for making that
reimbursement.
   This bill would provide that no reimbursement is required by this
act for a specified reason.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:


  SECTION 1.  Section 5913 of the Corporations Code is amended to
read:
   5913.  Except for an agreement or transaction subject to Section
5914 or 5920, a corporation shall give written notice to the Attorney
General 20 days before it sells, leases, conveys, exchanges,
transfers or otherwise disposes of all or substantially all of its
assets unless the transaction is in the usual and regular course of
its activities or unless the Attorney General has given the
corporation a written waiver of this section as to the proposed
transaction.
  SEC. 2.  Section 5914 of the Corporations Code is amended to read:

   5914.  (a) (1) Any nonprofit corporation that is subject to the
public benefit corporation law and operates or controls a health
facility, as defined in Section 1250 of the Health and Safety Code,
or operates or controls a facility that provides similar health care,
shall be required to provide written notice to, and to obtain the
written consent of, the Attorney General prior to entering into any
agreement or transaction to do either of the following:
   (A) Sell, transfer, lease, exchange, option, convey, or otherwise
dispose of, its assets to a for-profit corporation or entity or to a
mutual benefit corporation or entity when a material amount of the
assets of the public benefit corporation are involved in the
agreement or transaction.
   (B) Transfer control, responsibility, or governance of a material
amount of the assets or operations of the nonprofit public benefit
corporation to any for-profit corporation or entity or to any mutual
benefit corporation or entity.
   (2) The substitution of a new corporate member or members that
transfers the control of, responsibility for, or governance of the
nonprofit public benefit corporation shall be deemed a transfer for
purposes of this article.  The substitution of one or more members of
the governing body, or any arrangement, written or oral, that would
transfer voting control of the members of the governing body, shall
also be deemed a transfer for purposes of this article.
   (b) The notice to the Attorney General provided for in this
section shall include and contain the information the Attorney
General determines is required.  The notice, including any other
information provided to the Attorney General under this article, and
that is in the public file, shall be made available by the Attorney
General to the public in written form, as soon as is practicable
after it is received by the Attorney General.
   (c) This section shall not apply to a public benefit corporation
if the agreement or transaction is in the usual and regular course of
its activities or if the Attorney General has given the corporation
a written waiver of this section as to the proposed agreement or
transaction.
   (d) This section shall apply to any foreign nonprofit corporation
that operates or controls a health facility, as defined in Section
1250 of the Health and Safety Code, or a facility that provides
similar health care.
  SEC. 3.  Section 5915 of the Corporations Code is amended to read:

   5915.  Within 60 days of the receipt of the written notice
required by Section 5914, the Attorney General shall notify the
public benefit corporation in writing of the decision to consent to,
give conditional consent to, or not consent to the agreement or
transaction.  The Attorney General may extend this period for one
additional 45-day period if any of the following conditions are
satisfied:
   (a) The extension is necessary to obtain information pursuant to
subdivision (a) of Section 5919.
   (b) The proposed agreement or transaction is substantially
modified after the first public meeting conducted by the Attorney
General in accordance with Section 5916.
   (c) The proposed agreement or transaction involves a multifacility
health system serving multiple communities, rather than a single
facility.
  SEC. 4.  Section 5916 of the Corporations Code is amended to read:

   5916.  Prior to issuing any written decision referred to in
Section 5915, the Attorney General shall conduct one or more public
meetings, one of which shall be in the county in which the facility
is located, to hear comments from interested parties.  At least 14
days before conducting the public meeting, the Attorney General shall
provide written notice of the time and place of the meeting through
publication in one or more newspapers of general circulation in the
affected community and to the board of supervisors of the county in
which the facility is located.  If a substantive change in the
proposed agreement or transaction is submitted to the Attorney
General after the initial public meeting, the Attorney General may
conduct an additional public meeting to hear comments from interested
parties with respect to that change.
  SEC. 5.  Section 5919 of the Corporations Code is amended to read:

   5919.  (a) Within the time periods designated in Section 5915 and
relating to those factors specified in Section 5917, the Attorney
General may do the following:
   (1) Contract with, consult, and receive advice from any state
agency on those terms and conditions that the Attorney General deems
appropriate.
   (2) In his or her sole discretion, contract with experts or
consultants to assist in reviewing the proposed agreement or
transaction.
   (b) Contract costs shall not exceed an amount that is reasonable
and necessary to conduct the review and evaluation.  Any contract
entered into under this section shall be on a noncompetitive bid
basis and shall be exempt from Chapter 2 (commencing with Section
10290) of Part 2 of Division 2 of the Public Contract Code.  The
nonprofit public benefit corporation, upon request, shall pay the
Attorney General promptly for all contract costs.
   (c) The Attorney General shall be entitled to reimbursement from
the nonprofit public benefit corporation for all actual, reasonable,
direct costs incurred in reviewing, evaluating, and making the
determination referred to in this article, including administrative
costs.  The nonprofit public benefit corporation shall promptly pay
the Attorney General, upon request, for all of those costs.
   (d) (1) In order to monitor effectively ongoing compliance with
the terms and conditions of any sale or transfer of assets subject to
Section 5914, including, but not limited to, the ongoing use of the
charitable assets in a manner consistent with the trust pursuant to
which they are held, the Attorney General may, in his or her sole
discretion, contract with experts and consultants to assist in this
regard.
   (2) Contract costs shall not exceed an amount that is reasonable
and necessary to conduct the review and evaluation.  Any contract
entered into under this section shall be on a noncompetitive bid
basis and shall be exempt from Chapter 2 (commencing with Section
10290) of Part 2 of Division 2 of the Public Contract Code.  The
public benefit corporation shall pay the Attorney General promptly
for all contract costs.
   (3) The Attorney General shall be entitled to reimbursement from
the public benefit corporation for all actual, reasonable, and direct
costs incurred in monitoring ongoing compliance with the terms and
conditions of the sale or transfer of assets, including
administrative costs.  The public benefit corporation shall promptly
pay the Attorney General upon request for all of those costs.
  SEC. 6.  Section 5920 is added to the Corporations Code, to read:
   5920.  (a) (1) Any nonprofit corporation that is subject to the
public benefit corporation law and operates or controls a health care
facility, as defined in Section 1250 of the Health and Safety Code,
or operates or controls a facility that provides similar health care,
shall be required to provide written notice to, and to obtain the
written consent of, the Attorney General prior to entering into any
agreement or transaction to do either of the following:
   (A) Sell, transfer, lease, exchange, option, convey, or otherwise
dispose of, its assets to another public benefit corporation or
entity when a material amount of the assets of the public benefit
corporation are involved in the agreement or transaction.
   (B) Transfer control, responsibility, or governance of a material
amount of the assets or operations of the nonprofit public benefit
corporation to another public benefit corporation or entity.
   (2) The substitution of a new corporate member or members that
transfers the control of, responsibility for, or governance of the
nonprofit public benefit corporation, the substitution of one or more
members of the governing body that would transfer voting control of
the members of the governing body, or any arrangement, written or
oral, that would transfer voting control of the entity shall be
deemed a transfer for purposes of this article.
   (b) The notice to the Attorney General provided for in this
section shall contain the information the Attorney General determines
is required.  The notice, including any other information provided
to the Attorney General under this article, and that is the public
file, shall be made available by the Attorney General to the public
in written form, as soon as is practicable after it is received by
the Attorney General.
   (c) This section shall not apply to a public benefit corporation
if the agreement or transaction is in the usual and regular course of
its activities or if the Attorney General has given the corporation
a written waiver of this section as to the proposed agreement or
transaction.
   (d) This section shall apply to any foreign nonprofit corporation
that operates or controls a health facility, as defined in Section
1250 of the Health and Safety Code, or a facility that provides
similar health care.
   (e) This section shall not apply to an agreement or transaction if
the other party to the agreement or transaction is an affiliate, as
defined in Section 5031, of the transferring nonprofit public benefit
corporation or entity, and the corporation or entity has given the
Attorney General 20 days advance notice of the agreement or
transaction.
  SEC. 7.  Section 5921 is added to the Corporations Code, to read:
   5921.  Within 60 days of the receipt of the written notice
required by Section 5920, the Attorney General shall notify the
public benefit corporation in writing of the decision to consent to,
give conditional consent to, or not consent to the agreement or
transaction.  The Attorney General may extend this period for one
additional 45-day period if any of the following conditions are
satisfied:
   (a) The extension is necessary to obtain relevant information from
any state agency, experts, or consultants.
   (b) The proposed agreement or transaction is substantially
modified after the first public meeting conducted by the Attorney
General in accordance with Section 5922.
   (c) The proposed agreement or transaction involves a multifacility
health system serving multiple communities, rather than a single
facility.
  SEC. 8.  Section 5922 is added to the Corporations Code, to read:
   5922.  Prior to issuing any written decision referred to in
Section 5921, the Attorney General shall conduct one or more public
meetings, one of which shall be in the county in which the facility
is located, to hear comments from interested parties.  At least 14
days before conducting the public meeting, the Attorney General shall
provide written notice of the time and place of the meeting through
publication in one or more newspapers of general circulation in the
affected community and to the board of supervisors of the county in
which the facility is located.  If a substantive change in the
proposed agreement or transaction is submitted to the Attorney
General after the initial public meeting, the Attorney General may
conduct an additional public meeting to hear comments from interested
parties with respect to that change.
  SEC. 9.  Section 5923 is added to the Corporations Code, to read:
   5923.  The Attorney General shall have discretion to consent to,
give conditional consent to, or not consent to any agreement or
transaction described in subdivision (a) of Section 5920.  In making
the determination, the Attorney General shall consider any factors
that the Attorney General deems relevant, including, but not limited
to, whether any of the following apply:
   (a) The agreement or transaction will result in inurement to any
private person or entity.
   (b) The proposed use of the proceeds from the agreement or
transaction is consistent with the charitable trust on which the
assets are held by the health facility or by the affiliated nonprofit
health system.
   (c) The agreement or transaction involves or constitutes any
breach of trust.
   (d) The Attorney General has been provided, pursuant to Section
5250, with sufficient information and data by the nonprofit public
benefit corporation to evaluate adequately the agreement or
transaction or the effects thereof on the public.
   (e) The agreement or transaction may create a significant effect
on the availability or accessibility of health care services to the
affected community.
   (f) The proposed agreement or transaction is in the public
interest.
  SEC. 10.  Section 5924 is added to the Corporations Code, to read:

   5924.  (a) Within the time periods designated in Section 5921 and
relating to those factors specified in Section 5923, the Attorney
General may do the following:
   (1) Contract with, consult, and receive advice from any state
agency on those terms and conditions that the Attorney General deems
appropriate.
   (2) In his or her sole discretion, contract with experts or
consultants to assist in reviewing the proposed agreement or
transaction.
   (b) Contract costs shall not exceed an amount that is reasonable
and necessary to conduct the review and evaluation.  Any contract
entered into under this section shall be on a noncompetitive bid
basis and shall be exempt from Chapter 2 (commencing with Section
10290) of Part 2 of Division 2 of the Public Contract Code.  The
selling nonprofit public benefit corporation, upon request, shall pay
the Attorney General promptly for all contract costs.
   (c) The Attorney General shall be entitled to reimbursement from
the selling nonprofit public benefit corporation for all actual,
reasonable, direct costs incurred in reviewing, evaluating, and
making the determination referred to in Section 5921, including
administrative costs.  The selling nonprofit public benefit
corporation shall promptly pay the Attorney General, upon request,
for all of those costs.
   (d) (1) In order to effectively monitor ongoing compliance with
the terms and conditions of any sale or transfer of assets subject to
Section 5920, including, but not limited to, the ongoing use of the
charitable assets in a manner consistent with the trust pursuant to
which they are held, the Attorney General may, in his or her sole
discretion, contract with experts and consultants to assist in this
regard.
   (2) Contract costs shall not exceed an amount that is reasonable
and necessary to conduct the review and evaluation.  Any contract
entered into under this section shall be on a noncompetitive bid
basis and shall be exempt from Chapter 2 (commencing with Section
10290) of Part 2 of Division 2 of the Public Contract Code.  The
selling nonprofit public benefit corporation shall pay the Attorney
General promptly for all contract costs.
   (3) The Attorney General shall be entitled to reimbursement from
the selling public benefit corporation for all actual, reasonable,
and direct costs incurred in monitoring ongoing compliance with the
terms and conditions of the sale or transfer of assets, including
administrative costs.  The Attorney General shall be entitled to this
reimbursement for a period of time not to exceed two years after any
time period specified in the terms or conditions of sale or transfer
of assets.  The selling nonprofit public benefit corporation shall
promptly pay the Attorney General upon request for all of those
costs.
  SEC. 11.  Section 5925 is added to the Corporations Code, to read:

   5925.  The Attorney General may adopt regulations implementing
Sections 5920 to 5924, inclusive.
  SEC. 12.  Section 1260.1 is added to the Health and Safety Code, to
read:
   1260.1.  (a) Except as provided in subdivision (b), any member of
the board of directors of a nonprofit corporation that is subject to
Section 5920 of the Corporations Code, who negotiates the terms and
conditions of a sale or transfer of assets, as described in Section
5920 of the Corporations Code, is prohibited from receiving, directly
or indirectly, any salary, compensation, payment, or other form of
remuneration from the purchasing public benefit corporation or entity
following the close of the sale or other transfer of assets.  This
prohibition shall not apply to any reimbursement or payment made to a
member of the board of directors, who is a physician or other health
care provider, for direct patient care services provided to patients
covered by a health insurer, health care service plan, employer, or
other entity that provides health care coverage, and that is owned,
operated, or affiliated with the purchasing public benefit
corporation or entity, provided that the amounts payable for the
services rendered are no greater than the amounts payable to other
physicians or health care providers providing the same or similar
services.
   For the purpose of this section, "direct patient care services"
means health care services provided directly to a patient, and does
not include services provided through an intermediary.  Further, in
order to qualify for the exemption in this subdivision, the direct
patient care services must be health care services that are regularly
provided by other physicians or other health care providers in the
community who are also receiving reimbursements or payments from the
same health insurer, health care service plan, employer, or other
entity that is owned or operated by, or affiliated with, the
purchasing public benefit corporation or entity.
   (b) After a period of two years following the close of the sale or
other transfer of assets, a person who was a member of the board of
directors of the selling nonprofit corporation who is prohibited from
receiving any remuneration from the purchasing public benefit
corporation or entity under subdivision (a) may enter into usual and
customary business transactions with the purchasing public benefit
corporation or entity so long as the following facts are established:

   (1) Prior to authorizing or approving the transaction, the
representative of the purchasing public benefit corporation or entity
considered and in good faith determined after reasonable
investigation under the circumstances that the purchasing public
benefit corporation could not have obtained a more advantageous
arrangement with reasonable effort under the circumstances.
   (2) The purchasing public benefit corporation or entity, in fact,
could not have obtained a more advantageous arrangement with
reasonable effort under the circumstances.
   (c) Any person who is a member of management of the selling
nonprofit corporation and who presents information or opinions to the
board regarding the sale or other transfer of assets as described in
subdivision (a) that are relied upon, or considered by, any of the
board members in making decisions regarding the sale or transfer, may
make a written affirmative declaration that he or she will not work
for, or receive any form of remuneration from, the purchasing public
benefit corporation or entity in the future.
   (d) In making any decision regarding the sale or other transfer of
the nonprofit corporation's assets, as described in Section 5920 of
the Corporations Code, the board of the selling nonprofit corporation
is prohibited from substantially relying on any information
presented by any person to whom subdivision (c) applies who has not
made a written affirmative declaration pursuant to subdivision (c).
This subdivision shall not apply to any person whose only role in the
sale or transfer is to provide to the selling nonprofit corporation
exclusively factual information about the selling nonprofit
corporation, community, financial status, or other similar data.
   (e) In performing those duties of a director set forth in
subdivision (d), the board of directors may contract with independent
counsel, accountants, financial analysts, or other professionals
whom the board believes to be reliable and competent in the matters
presented, to review and evaluate information and advice presented by
an employee who has not signed an affirmative declaration pursuant
to subdivision (c).  Any director who substantially relies on
information and advice presented by the independent professional
shall be deemed to have not violated subdivision (d).
  SEC. 13.  No reimbursement is required by this act pursuant to
Section 6 of Article XIIIB of the California Constitution because the
only costs that may be incurred by a local agency or school district
will be incurred because this act creates a new crime or infraction,
eliminates a crime or infraction, or changes the penalty for a crime
or infraction, within the meaning of Section 17556 of the Government
Code, or changes the definition of a crime within the meaning of
Section 6 of Article XIIIB of the California Constitution.
